Registered: Dec 2003
08-09-12 12:54 PM
45 WAYS TO LOSE MONEY TRADING FOREX by Jimmy Young, CTA
Who is Jimmy Young?
Retired proven professional Bank FOREX trader with over 20 years of hands-on FOREX trading experience.
1) Knowledge Deficiency â€“ Most new FOREX traders donâ€™t take the time to learn what drives currency rates (primarily fundamentals). When news or a statement is due out they must close out their positions and sit out the best trading opportunities. They are taught to only trade after the market calms down. So essentially they miss the whole move and then trade the random noise that follows a fundamental price move. Just think for a moment about technically trading the aftermath of a price move; there is no potential.
2) Overtrading - Trading often with tight stops and tiny profit targets will only make the broker rich. The desire to â€śjustâ€ť make a few hundred dollars a day by locking in tiny profits whenever possible is a losing strategy.
3) Over leveraged - Leverage is a two way street. The brokers want you to use high leverage because that means more spread income because your position size determines the amount of spread income; the bigger the position the more spread income the broker earns.
4) Relying on Others â€“ Real traders play a lone hand; they make their own decisions and donâ€™t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.
5) Stop Losses â€“ Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.
6) Demo Accounts â€“ Broker demo accounts are a shill game of sorts; theyâ€™re not as time sensitive as real accounts and therefore give the impression that time sensitive trading systems, such as short-term moving average crossovers can be consistently profitably traded; once you start dealing with real money, reality is quick to set in.
7) Trading During Off Hours â€“ Bank FX traders, option traders, and hedge funds have a huge advantage during off hours; they can push the currencies around when no volume is going through and the end game is new traders get fleeced trying to trade signals. There is only one signal during off hours â€“ stay out.
8) Trading a Currency, Not a Pair â€“ Being right about a currency is half a trade; success or failure depends upon being right about the second currency that makes up the pair.
9) No Trading Plan - Make money is not a trading plan. A trading plan is a blueprint for trading success; it spells out what you see your edge as being; if you donâ€™t have an edge, you donâ€™t have a plan, and likely youâ€™ll wind up a statistic (part of the 95% of new traders that lose and quit).
10) Trading Against Prevailing Trend â€“ There is a huge difference between buying cheaply on the way down and buying cheaply. What was a low price quickly becomes a high price when youâ€™re trading against the trend.
11) Exiting Trades Poorly â€“ If you put on a trade and itâ€™s not working make sure you exit properly; donâ€™t compound the damage. If youâ€™re in a winning trade, donâ€™t talk yourself out of the position because youâ€™re bored or want to relieve stress; stress is a natural part of trading; get used to it.
12) Trading Too Short-term â€“ If your profit target is less than 20 points donâ€™t do the trade; the spread you pay to enter the trade makes the odds way against you when you go for these tiny profits.
13) Picking Tops and Bottoms - Looking for bargains works well at the supermarket but not trading foreign exchange; try to trade in the direction the price is going and your results will improve.
14) Being Too Smart â€“ The most successful traders I know are high school graduates. They keep it simple and donâ€™t look beyond the obvious; their results are excellent.
15) Not Trading Around News Time â€“ Most of the big moves occur around news time. The volume is high and the moves are real; there is no better time to trade fundamentally or technically than when news is released; this is when the real money adjusts their positions and as a result the price changes reflect serious currency flow (compared to quiet times when Bank traders rule the market with their customer order flow.
16) Ignore Technical Condition â€“ Determining whether the market is over-extended long or over-extended short is a key determinant of near time price action. Spike moves often occur when the market is all one way.
17) Emotional Trading â€“ When you donâ€™t pre-plan your trades essentially itâ€™s a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Do people generally say intelligent things when they are upset and emotional? I donâ€™t think so.
18) Lack of Confidence â€“ Confidence only comes from successful trading. If you lose money early in your trading career itâ€™s very difficult to gain true confidence. The trick is donâ€™t go off half-cocked. Learn the business before you trade.
19) Lack of Courage to Take a Loss â€“ There is nothing macho or gutsy about riding a loss, just stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Getting married to a bad position ruins lots of traders. The thing to remember is the market does crazy things often, so donâ€™t get married to any one trade. Itâ€™s just a trade. One good trade will not make you a trading success; rather itâ€™s monthly and annual performance that defines a good trader.
20) Not Focusing on the Trade at Hand â€“ There is no room for fantasizing in successful trading. Counting up and mentally spending profits you havenâ€™t made yet is mental masturbation and does you no good. Same with worrying about a loss that hasnâ€™t happened yet. Focus on your position and have a reasonable stop loss in place at the time you do the trade. Then be like an astronaut â€“ sit back and enjoy the ride. No sense worrying because you have no real control. The market will do what it wants to do.
21) Interpreting FOREX News Incorrectly â€“ Fact is the press only has a very superficial understanding of the news they are reporting and tend to focus on one element and miss the point. Learn to read the source documents and understand it for real.
22) Lucky or Good â€“ Your account balance changes donâ€™t tell you the whole story about your trading. Fact is if you are taking a lot of risk and making money you will eventually crash and burn. Look at the individual trade details. Focus on your big loses and losing streaks. Ask yourself this, "If I had a couple of consecutive losing streaks or a couple of consecutive big loses, how would my account balance look?" Generally, traders making money without big daily loses have the best chance of sustaining positive performance. The others are accidents waiting to happen.